EToro is a long standing investment platform which offers some genuinely quite innovative trading methods. To the best of my knowledge, it is unique in its concept and execution.
What does the product offer?
Typically speaking I would not be inclined to let a product define itself however eToro is something that is a bit different. If I am honest, there marketing department does a much better job of finding the right words than I ever could. They say that eToro is “The world’s leading social trading network” and this is about as concise a description I could hope to give. This is in no small part because there are two wildly differing sides to the service. I will go into more detail below, but essentially, you can trade yourself or follow other traders. I will mostly be concentrating on the latter as I believe it is where the general interest in eToro will lie. I do however want to talk a little bit about both sides of the coin however.
With this rather lengthy introduction out of the way, what exactly are you getting here? At its core, eToro is a trading platform and it is that simple. You can use it to invest and execute trades on a huge variety of currencies, shares and commodities. Essentially, it is not really any different to trading on a Forex platform. Whilst you can do all of this yourself, at its best, eToro is all about copying other investors.
This is the big draw with eToro.
When you sign up you can also look at how their professional investors are doing. These are accounts which have been trading successfully (or unsuccessfully as the case may well be) and can be copied. You simply have to invest in those traders and eToro will automatically trade with these funds based off what that particular investor is doing.
It is definitely an interesting idea and I can see why eToro refer to themselves as a social trading network. As well as following individuals, you can also follow “copyfunds” which allow you to copy larger investment funds.
Every trader on eToro is available to be copied and there is a full breakdown provided for their performance. This includes things like a “risk index” which shows how risky their trades are. It also shows their performance since joining, details about their portfolio and a host of other bits of information. All of this is there so that you can make an informed decision about where you choose to put your money.
Finally I want to touch on being a trader that people follow. Should you choose to trade yourself and get enough of a following (as well as making a decent profit), you can generate additional revenue on top of trading. This means becoming a “popular investor” for eToro which comes with a few different perks. Probably the most appealing to successful traders is that you can get “spread rebates”.
These essentially allow you a discount on eToro’s markup on the spreads. If you move up in their ranks, there is also an option to receive fixed payments from eToro directly.
How does eToro work?
As a method of trading, eToro is probably one of the most unique and easiest methods that I have encountered. It is all about approachability and whether you want to trade yourself or utilise it as a passive method of income, it is not difficult. There is a tutorial to get you started as well as comprehensive details on how to do everything. This includes a live support network.
For the purposes of this, I am looking at eToro as somebody who doesn’t want to actively trade however and is interested in having somebody else “do the work” for them. The copying process is incredibly straight forward and the fact that you are not having to faff about receiving notifications for trades yourself or setting alerts makes eToro one of the few passive trading methods I would consider using long term.
Choosing who to follow naturally comes with some risk, but given the information that is available any decision that you make should always be well informed.
What is the initial investment?
There are a number of fees involved with eToro that I want to cover but there is little easy to follow structure to them. In terms of initial investment however, I would probably say that to make eToro work for you properly you need to put $1,000 into every person you are copying. This will allow you to follow all of their trades etc.
In terms of what it costs to use eToro, there are a number of fees. The main one that you will notice is a withdrawal fee of $25. This applies every time you withdraw money. There are also conversion fees which are charged upon deposit and withdrawal and these can be quite pricey. On top of all of this, if your account is inactive, you will be charged $5 to any remaining balance.
What is the rate of return?
The amount that you earn through eToro will undoubtedly depend on who you are following. Looking at medium risk traders, returns of around 90% are entirely possible. If you want to look at lower risk traders then this number generally goes down. What it is fair to say is that there is a lot of profit potential to be had with eToro, especially if you keep a decent and varied portfolio.
Conclusion on eToro?
I want to start by saying that in many respects, I am actually quite impressed with eToro. It appears to be a very interesting option for anybody with capital to invest who does not want to get bogged down with the complexities. Obviously, there is still work involved in terms of identifying whose bets you want to copy etc. Compared to trading yourself however, it goes without saying that following eToro is much less work. On top of this, the interface is really simple to use and is concise with the information.
All of these are strong positives however there are some factors that need to be considered as well.
Whilst I wouldn’t call it a problem by any stretch of the imagination, it is also important to consider that you will need a fair amount of money to actually invest in eToro to the point where you will make a decent profit. This means that it isn’t going to be for everybody but for those who can afford to invest, I have seen much worse options that cost a lot more.
This does bring me to a point which is value for money. Obviously there are costs involved with eToro however these follow a pay as you go principle. I also don’t believe that they are ever really excessive. With this in mind it is quite apparent to me that given everything, there is definitely value for money to be had here.
EToro is not going to be for everybody, if only for the capital needed to get started. I don’t believe that there is a lot of argument to be had in that regard. For those who can afford to invest and are looking for a genuinely hands off approach to investment, eToro is one of the better options that I have looked at.
It is a little different to the norm, but ultimately, you can take some control of your investments without having to put the time in and there aren’t many products that provide this option.